<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1997
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ___________________
Commission file number 0-20554
DYNACQ INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
NEVADA 76-0375477
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10304 INTERSTATE 10 EAST, SUITE 369, HOUSTON, TEXAS 77029
(address of principal executive offices) Zip Code
Registrants telephone number, including area code (713)673-6432
N/A
(Former name, former address and former
fiscal year, if changed since last report)
Check whether the issurer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirement for the past
90 days. Yes X . No .
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable dates.
Title of Each Class Outstanding at March 31, 1997
Common Stock, $0.001 par value 14,235,136 shares
Transitional Small Business Disclosure Format (check one)
Yes No X
------ -------
<PAGE> 2
PART I. - FINANCIAL INFORMATION
ITEM I. - FINANCIAL STATEMENTS
DYNACQ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited) (Audited)
ASSETS
FEBRUARY 28, AUGUST 31
1997 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash 778,617 1,134,579
Restricted Short-Term Investments 180,000 180,000
Receivable (Net of Allowance for 2,462,976 2,413,372
Doubtful Accounts)
Inventory 34,264 29,347
Other Current Assets 34,149 31,120
----------- -----------
Total Current Assets 3,490,006 3 ,788,418
FIXED ASSETS - NET 5,235,513 5,197,107
OTHER ASSETS 1,264,751 1,333,084
----------- -----------
TOTAL ASSETS 9,990,270 10,318,609
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable 152,196 199,452
Accrued Liabilities 734,439 797,021
Income Taxes Payable 197,651 252,110
Current Portion of Notes Payable 277,833 277,833
Federal Income Taxes Payable 305,259 436,000
----------- -----------
TOTAL CURRENT LIABILITIES 1,667,378 1,962,416
LONG-TERM DEBT 817,949 969,392
DEFERRED FEDERAL INCOME TAX PAYABLE 134,000 134,000
MINORITY INTERESTS IN SUBSIDIARY 877,164 856,357
STOCKHOLDERS' EQUITY:
Preferred Stock, $0.01 Par Value,
5,000,000 Shares Authorized,
None Issued or Outstanding
Common Stock, $0.001 Par Value,
300,000,000 Shares Authorized
After 8 to 1 reverse Stock Split,
14,235,136 Shares Issued and
Outstanding 14,235 14,235
Additional Paid In Capital 3,452,130 3,452,130
Retained Earnings 3,074,736 2,987,401
LESS TREASURY STOCK; 71,335 shares at cost (57,322) (57,322)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 6,483,779 6,396,444
=========== ===========
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 9,990,270 10,318,609
=========== ===========
</TABLE>
<PAGE> 3
DYNACQ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 28 FEBRUARY 28
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INCOME 2,253,684 1,963,686 4,436,177 3,508,693
COST OF SALE 101,851 74,185 154,385 180,922
----------- ----------- ----------- -----------
GROSS PROFIT 2,151,833 1,889,501 4,281,792 3,327,771
LESS EXPENSES :
Contract Services 750,273 595,098 1,511,147 795,213
Salaries 610,947 256,857 1,097,628 465,394
Medical Supplies 249,367 112,324 400,819 279,657
Administrative 138,955 56,303 269,700 118,349
Depreciation & Amortization 115,588 127,267 225,434 258,539
Auto Expenses 9,629 10,555 24,545 18,759
Taxes, Licences & Prof. Fees 55,920 235,717 210,038 287,067
Leasing 3,934 1,718 7,368 5,823
Rent 47,367 3,858 105,023 7,716
Marketing & Promotion 26,773 18,711 82,944 18,711
Maintenance & Repairs 15,747 28,027 36,519 60,180
Utilities 34,260 22,102 54,098 45,571
Insurance 25,853 8,669 52,518 8,980
Interest 27,891 35,348 57,491 72,405
----------- ----------- ----------- -----------
Total Expenses 2,112,504 1,512,554 4,135,272 2,442,364
----------- ----------- ----------- -----------
NET INCOME FROM OPERATIONS 39,329 376,947 146,520 885,407
MINORITY INTERESTS IN (9,904) (25,005) (30,807) (85,651)
PROFIT/(LOSS) OF SUBSIDIARY
LESS PROVISION FOR FEDERAL
INCOME TAXES
Current 15,435 118,136 28,378 183,136
Deferred 0 0 0 96,779
----------- ----------- ----------- -----------
Total Income Taxes 15,435 118,136 28,378 279,915
----------- ----------- ----------- -----------
NET INCOME (LOSS) 13,990 283,806 87,335 519,841
=========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE:
INCOME BEFORE PROVISION
FOR FEDERAL INCOME TAX 0.002 0.025 0.008 0.056
PROVISION FOR FEDERAL
INCOME TAX 0.001 0.008 0.002 0.020
----------- ----------- ----------- -----------
NET INCOME 0.001 0.016 0.006 0.037
WEIGHTED AVERAGE NUMBER 14,235,136 14,235,136 14,235,136 14,235,136
OF SHARES OUTSTANDING
*(AS ADJUSTED FOR 8 TO 1 REVERSE * * * *
STOCK SPLIT EFFECTIVE MARCH 8, 1993.)
</TABLE>
<PAGE> 4
DYNACQ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED FEBRUARY 28
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
USED BY OPERATING ACTIVITIES:
Net Income (Loss) 87,335 519,841
ADD: ITEMS NOT REQUIRING CASH:
DEPRECIATION 225,434 258,539
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
(Increase) Decrease in Accounts Receivable (49,604) 391,840
(Increase) Decrease in Inventory (4,917) 3,221
(Increase) Decrease in Other Current Assets (3,029) 45,444
(Increase) Decrease in Notes Receivable 0 0
(Increase) Decrease in Other Assets 68,333 182,680
Increase (Decrease) in Accounts Payable (47,256) (121,034)
Increase (Decrease) in Accrued Liabilities (62,582) 9,458
Increase (Decrease) in Current Notes Payable 0 (19,231)
Increase (Decrease) in Current Income Taxes (185,200) (42,864)
Increase (Decrease) in Deferred Income Taxes 0 96,779
---------- ----------
Net Cash Used by Operating Activities 28,514 1,324,673
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of Fixed Assets (263,840) (87,412)
(Decrease) Increase of Minority Interests 30,807 85,651
in subsidiary
---------- ----------
Net Cash Used by Investing Activities (233,033) (1,761)
CASH FLOW FROM FINANCING ACTIVITIES:
Retirement of Long -Term Debt (151,443) (123,927)
Acquisition of treasury stock 0 0
---------- ----------
Net Cash Provided by Financing Activities (151,443) (123,927)
---------- ----------
Net Increase/(Decrease) in Cash (355,962) 1,198,985
CASH BALANCE AT BEGINNING OF YEAR 1,134,579 649,572
---------- ----------
CASH BALANCE AT END OF THE QUARTER 778,617 1,848,557
========== ==========
</TABLE>
<PAGE> 5
DYNACQ INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1997
(UNAUDITED)
NOTE 1. - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by Dynacq
International, Inc. without audit pursuant to the rules and regulations of the
Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted as allowed by by such rules and regulations, and
management believes that the disclosures are adequate to make the information
presented not misleading. These financial statements include all of the
adjustments which, in the opinion of management, are necessary for a fair
presentation of financial position and results of operations. All such
adjustments are of a normal and recurring nature. These unaudited financial
statements should be read in conjunction with the audited financial statements
at August 31, 1996. Operating results for the six months period ended February
28,1997 are not necessarily indicative of the results that may be expected for
the year ending August 31, 1997.
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED FEBRUARY 28, 1997
TO THE THREE MONTHS ENDED FEBRUARY 28, 1996
Consolidated revenues for the three months ended February 28, 1997 increased
$289,998 or 15% from that for the corresponding previous quarter ended February
28, 1996. Notwithstanding this moderate increase in consolidated revenues,
there were a number of significant increases and decreases in the component
revenue categories. For instance, while Doctor's Practice Management, Inc.
("DPMI") generated $1,462,613 revenues in the current quarter, it only
generated two months revenue of $776,785 in the corresponding fiscal quarter of
1996. Revenue attributable to home infusion therapy operations decrease $68,565
or 15% in the current quarter due to lower patient load as a result of fewer
referrals and lower reimbursable insurance charges per patient compared to the
corresponding quarter of the previous fiscal year. Rental revenue decreased
$81,200 and revenue attributable to Vista operations decreased $253,909 or 38%
from that of the prior year due to fewer patient referrals, primarily as a
result of the relocation of a physician group which was located on the
premises.
Consolidated costs of sale for the three months ended February 28, 1997
increased $27,666 or 37% from that for the corresponding previous quarter ended
February 28, 1996, was primarily attributable to DPMI, which had only two
months of activities in the corresponding previous quarter.
Consolidated operating expenses for the three months ended February 28, 1997
increased $599,950 or 40% from that for the corresponding previous quarter
ended February 28, 1996 primarily due to increase in activities of DPMI. The
significant increases and decreases in the component expense categories of the
consolidated operating expenses are explained as follows:
<PAGE> 6
(1) The increase in contract services of $155,175 or 26% was primarily
attributable to DPMI, which had only two months of activities in the
corresponding previous quarter.
(2) The increase in salaries expenses of $354,090 or 138% was primarily
attributable to DPMI, which had only two months of activities in the
corresponding previous quarter.
(3) The increase in medical supplies expense of $137,043 or 122% was primarily
attributable to DPMI, which had only two months of activities in the
corresponding previous quarter.
(4) The increase in administrative expenses of $82,652 or 147% was primarily
due to DPMI, which had only two months of activities in the corresponding
previous quarter.
(5) The decrease in taxes, licences and professional fees of $179,797 or 76%
was primarily due to eliminating of management fee paid by Vista to DPMI.
(6) The increase in leasing expense of $2,216 or 129% was primarily due to
DPMI, which had only two months of activities in the corresponding
previous quarter.
(7) The increase in rent expense of $43,509 or 113% was primarily due to DPMI,
which had only two months of activities in the corresponding previous
quarter.
(8) The increase in marketing & promotion expense of $8,062 or 43% was
primarily due to DPMI, which had only two months of activities in the
corresponding previo quarter.
(9) The increase in utilities expense of $12,158 or 55% was primarily due to
DPMI, which had only two months of activities in the corresponding
previous quarter.
(10) The increase in insurance expense of $17,184 or 198% was primarily due to
DPMI, which had only two months of activities in the corresponding
previous quarter.
(11) The decrease in interest expense of $7,457 or 21% was primarily
attributable to Vista due to the amortization of the mortgage interest
expense.
COMPARISION OF THE SIX MONTHS ENDED FEBRUARY 28, 1997 TO THE SIX
MONTHS ENDED FEBRUARY 28, 1996.
Consolidated revenues for the six months ended February 28, 1997 increased
$927,484 or 26% from that for the corresponding period ended February 28 of the
previous fiscal year. Notwithstanding this moderate increase in consolidated
revenues, there were a number of significant increases and decreases in the
component revenue categories. For instance, while DPMI generated $2,722,869
revenues in the current quarter, it only generated two months revenue of
$766,785 in the corresponding quarter of 1996. Revenue attributable to home
infusion therapy operations decreased $290,362 or 26% in the current quarter
due to lower patient load as a result of fewer referrals and lower reimbursable
insurance charges per patient compared to the corresponding quarter of the
previous fiscal year. Rntal revenue decreased $182,635 and revenue attributable
to Vista operations decreased 636,253 or 44% from that of the prior year due to
fewer patient referrals, primarily as a result of the relocation of a physician
group which was located on the premises.
Consolidated costs of sale for the six months ended February 28, 1997 decreased
$26,357 or 15% from that for the corresponding period ended February 28 of the
previous fiscal year, primarily due to lower patient load of the home infusion
therapy operations.
Consolidated operating expenses for the six months ended February 28, 1997
increased $1,692,908 or 69% from that for the corresponding period ended
February 28 of the previous fiscal year. The significant increases and
decreases in the component expense categories of the consolidated operating
expenses are explained as follows:
(1) The increase in contract services expense of $715,934 or 90% was primarily
attributable to DPMI, which had only two months of activities in the
corresponding previous quarter.
(2) The increase in salaries expense of $632,234 or 136% was primarily
attributable to DPMI, which had only two months of activities in the
corresponding previous quarter.
(3) The increase in medical supplies expense of $121,162 or 43% was primarily
attributable to DPMI, which had only two months of activities in the
corresponding previous quarter.
(4) The increase in administrative expense of $151,351 or 128% was primarily
attributable to DPMI, which had only two months of activities in the
corresponding previous quarter.
<PAGE> 7
(5) The increase in auto expense of $5,786 or 31% was primarily attributable
to DPMI, which had only two months of activities in the corresponding
previous quarter.
(6) The decrease in taxes, licences and professional fees of $77,029 or 27%
was primarily due to decreasing in management fee paid by Vista to DPMI.
(7) The increase in leasing expense of $1,545 or 27% was primarily
attributable to DPMI, which had only two months of activities in the
corresponding previous quarter.
(8) The increase in rent expense of $97,307 or 126% was primarily attributable
to DPMI, which had only two months of activities in the corresponding
previous quarter.
(9) The increase in marketing and promotion expense of $64,233 or 343% was
primarily attributable to Vista to increase public awareness of the
facilities.
(10) The increase in utilities expense of $8,527 or 19% was primarily
attributable to DPMI, which had only two months of activities in the
corresponding previous quarter.
(11) The increase in insurance expense of $43,538 or 485% was primarily
attributable to DPMI, which had only two months of activities in the
corresponding previous quarter.
(12) The decreased in interest expense of $14,914 or 21% was primarily
attributable to Vista due to amortization of mortgage interest expense.
FINANCIAL CONDITION
COMPARISON OF THE BALANCE SHEETS AT SIX MONTHS ENDED FEBRUARY 28, 1997 TO THE
AUDITED BALANCE SHEET AT FISCAL YEAR ENDED AUGUST 31, 1996.
Consolidated cash for the three months ended February 28, 1997 decreased
$355,962 or 31% from that of the previous audited balance sheet ending August
31, 1996 was due to $28,514 used by operating activities, $233,033 used by
investing activities and $151,443 used by financing activities. Consolidated
accounts payable and accrued liabilities for the six months ended February 28,
1997 decreased $109,838 or 11% from that of the previous audited balance sheet
ended August 31, 1996 due to the payment of trade payable.
Liquidity and Capital Resources
Working Capital of $1,822,628 at February 28, 1997 decreased $3,374 or 0.2%
from working capital at August 31, 1996 primarily due to decrease in cash,
accounts payable and accrued liabilities. At February 28, 1997, the Company
maintained a liquid position evidenced by a current ratio of 2.09 to 1 and
total debt to equity of 0.54 to 1.
PART II.
ITEM 1. - LEGAL PROCEEDINGS
In March, 1997 DPMI filed a civil lawsuit against Houston Physical
Medicine Associates, M.D., P.A. and Anjali Jain, M.D. in the 269th District
Court of Harris County, Texas to seek repayment of $110,000 owed to DPMI
pursuant to the Revolving Credit Agreement and Security Agreement executed in
July of 1996. No reserve for bad debt has been recorded in the current
quarterly financial statement.
ITEM 2. - CHANGES IN SECURITIES
None
ITEM 3. - DEFAULT UPON SENIOR SECURITIES
None
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. - OTHER INFORMATION
None
<PAGE> 8
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
27 Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DYNACQ INTERNATIONAL, INC.
DATE BY:
------------------------------- ---------------------------------
Philip Chan
VP-Finance/Treasurer &
Chief Financial Officer
<PAGE> 9
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> FEB-28-1997
<CASH> 958,617
<SECURITIES> 0
<RECEIVABLES> 2,462,976
<ALLOWANCES> 0
<INVENTORY> 34,264
<CURRENT-ASSETS> 3,490,006
<PP&E> 5,235,513
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,990,270
<CURRENT-LIABILITIES> 1,667,378
<BONDS> 817,949
0
0
<COMMON> 14,235
<OTHER-SE> 6,483,779
<TOTAL-LIABILITY-AND-EQUITY> 9,990,270
<SALES> 0
<TOTAL-REVENUES> 4,436,177
<CGS> 154,385
<TOTAL-COSTS> 4,077,781
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,491
<INCOME-PRETAX> 146,520
<INCOME-TAX> 28,378
<INCOME-CONTINUING> 118,142
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 87,335
<EPS-PRIMARY> 0.006
<EPS-DILUTED> 0.006
</TABLE>
